Converting to a Roth IRA
Thinking of converting your IRA? Make sure to carefully review the
details and benefits that traditional and Roth IRAs each offer.
Here's a quick summary of the differences:
|Eligibility dependent on earned income levels
|Tax-deferred growth of earnings
|Tax-free growth of earnings
|Tax-free withdrawals of principal
|Contributions after age 70
|Required minimum distributions after age 70
What You Should Know Before You Convert
When you have a traditional IRA and you make deductible
contributions, you pay taxes upon the entire amount you withdraw
later. If the contributions you make to a traditional IRA are
non-deductible, you pay taxes only on the earnings withdrawn. With a
Roth IRA, your contributions have already been taxed (at your
current tax bracket), so qualified withdrawals are tax-free. To
convert your traditional, rollover or SEP-IRA into a Roth IRA keep
* Through 2009 your adjusted gross income (AGI) must not exceed
$100,000 and, if married, you must file a joint tax return. The AGI
limit is removed in 2010.
* If you make a contribution to a Roth or convert a traditional IRA
to a Roth, you can re-characterize the Roth contribution as a
traditional IRA contribution or reverse the conversion to Roth
(subject to limitations).
* You will have to pay taxes on the converted funds. It may make
sense to convert if you can easily afford to pay the taxes on the
conversion from non-IRA assets.
Roth IRA Advantages
Roth IRAs can provide a tax-free source of retirement income.
Contributions to a Roth IRA are not deductible, but withdrawals
- including any earnings - are generally free from federal
income taxes. Roth distributions are tax-free if you begin
withdrawals at least five years after establishing the account,
and you are at least age 59 at the time of the withdrawal; or
you are using the funds for the purchase of a first home or you
are disabled or deceased.
Unlike traditional IRAs, Roth IRAs allow you to make
contributions after age 70.
There are no minimum required distributions with a Roth
IRA. Traditional IRAs require minimum distributions starting on
April 1 of the year after you reach 70.
You may contribute up to $4,000 ($8,000 for married couples
filing jointly, as long as no more than $4,000 goes into either
spouse's IRA annually) or 100 percent of earned income, whichever is
less, to a Roth IRA annually. The contribution limit phases out for
singles with an AGI of $99,000 to $114,000, and for married couples
filing jointly with an AGI of $156,000 to $166,000.
You may convert a traditional IRA to a Roth IRA in any year your
AGI doesn't exceed $100,000, provided your tax status is not
"married filing separately." However, the amount you convert from a
traditional IRA to a Roth IRA is generally considered part of your
taxable income for the year of conversion. However, you may incur
this penalty if you subsequently withdraw converted funds from the
Roth IRA before age 59 and sooner than five years after establishing
your Roth IRA. Your financial professional or tax adviser can
provide more detailed information on tax-related issues.
You don't have to choose one type of IRA over the other. You may
have both a traditional IRA and a Roth IRA, contributing to either
or both whenever you wish. Your total annual contribution to all
IRAs may not exceed the lesser of $4,000 or 100 percent of earned
For more information or to have us answer any questions you may
have, please call 1-800-559-2900,
Atlantic Financial, or contact us See Also:
vs. Traditional IRA |
| Traditional IRA